Kevin Gallagher let rip on the supposed "gas shortage" continually brought up by politicians, From the STO earnings call, my bolding:
James Byrne(from Citi) "... I wanted to ask question about gas market, pretty broadly on the East Coast. So if we say certain [indiscernible] politician running an election campaign and decides to go a bit harder on rhetoric in the gas industry. You talk about how high gas prices may or may not be threatening manufacturing jobs. Wondering how you guys sent those think you might be able to defend against central allegations that you're part of the problem. And the reason that I asked just to be clear is because this is a question I've been getting from shareholders.
Kevin Gallagher Well, look, I mean, first of all, I'm not going to speculate on what politicians may or may not do, we'll deal with if and when anything occurs, and not space. What I can see as on both sides of politics, I think it's very much appreciated what Santos are doing to support the domestic gas market here on the East Coast.We're increasing the number of wells across the Cooper Basin quite considerably we're increasing production and the Cooper Basin. And of course, we're continue to progress the approval process for the Narrabri gas project which still represent the best single opportunity to bring gas, additional gas volumes into the market and the short to medium-term here on the East Coast.I will remind you James, that all gas from the Narrabri gas project is earmarked for the domestic gas market. And so I think Santos will be seen today as a company that's very focused on supporting the domestic market and I think if you spoke to many of the manufacturers they would acknowledge the work that Santos is doing, what the manufacturers to free up more gas.
James Byrne Okay, that's really clear. In terms of more gas supply your Queensland suppliers to say it's pretty strong compared to my forecast or setting we might be able to talk about Arcadia a little bit. Hopefully, you could give me a sort of a number to think about for the 2, 3 in Arcadia, but failing that. I mean what do we need to see from Phase 1 to ultimately think about sanctioning the Phase 2 and ultimately 3 to unlock the dented that 2, 3?
Kevin Gallagher Well, I'm not going to give a forecast or speculate what Arcadia maybe now they will communicate it today have the projects going we've got our Phase 1, which is 136 wells, we've got 56 of those wells drill, we're ahead of schedule and delivering within budget expectations. And as I said, we expected first well online by the end of this quarter. We'll wait and see how that performs. And that's going to give us information that will then obviously feed into a decision making for future development of resource. But so far, so good, it's going well along with Roma East and the other operations in Queensland. But I think the point to make there is that, there is no shortage of gas. We've got hundreds of years of gas supply on the East Coast. There's lots of gas and the current whether that be in Queensland or other areas across the East coast of Australia. And I genuinely believe that as we continue to develop our understanding in Australia of the role that gas has to play as the energy -- the transition energy source if you like for by transition to lower carbon future, the gas will play an increasing part in Australia's energy and policy.
James Byrne So I presume that you reject the notion in the press today from a consultancy that one train in Queensland will need to shutdown in order to protect the domestic gas market?
Kevin Gallagher Well, just hope I'm not paying for that report. But all I would say James is that there's no news there, I mean that's all, excuse me, we gave a forecast back in December 2016 that we were planning to run GLNG. As I said million tons per annum project for the foreseeable future and we give guidance to the market then to model it that way, as far as I can see nothing's changed we're still will be 6 million tons per annum sales by the end of this year that's the plan, nothing's changed.
At some point in time surely the message gets understood that If you
(a) don't invest to explore, discover, appraise, develop new wells/fields (and those turkeys that didn't want QLD CSG wells to be developed but were developed for export LNG now want companies to break contracts to "protect" domestic market) then you will ultimately have a shortage
(b) the $3-$6/GJ gas days are GONE! Costing at least $6/GJ to produce now. Roughly speaking (complete) SOLE project required $550M to bring 200PJ over 8 yrs or so. Just on the capital portion alone alone (if you reinvested the annual interest) the FV of $550M in 8 years is just shy of $1,200M (at 10% discount rate). RIGHT THERE IS $6/GJ in capital. Now add the annual operating & maintenance costs and of course what about getting a return on the risk you are taking. If you couldn't sell it for $9/GJ whats the point of putting capital into O&G E&P.
Why is it that COE has uncontracted gas available from Sole ... because buyers blindly believe that they are being ripped off by producers and somehow prices will come down? Risk Management 101. Surety of supply. Get firm volume/price commitments.
Stopping now before I break something.
COE Price at posting:
52.0¢ Sentiment: Buy Disclosure: Held
(20min delay)
